UBS Warns of Higher Than Expected Losses
In a conference call today, UBS warned of higher than anticipated losses for the third quarter, attributed largely to fixed income losses. The Company projected a group pre-tax loss of CHF 600-800 million (USD $500-700 million).
The write downs in fixed income are estimated to be in the range of CHF 4 billion (USD $3.4 billion) and are largely due to significant positions in subprime mortgages.
So, why were the results so much worse than those of their U.S. counterparts? According to CreditSights, there could be two contributing factors: first, the reporting period is July through September, whereas the U.S. firms reported June through August; and secondly, US GAAP has provisions that enable firms to offset mark-to-market losses with mark-to-market gains on their debt securities. However, CreditSights does not see these factors explaining all of the difference.
We think that UBS was simply caught with proportionately higher sub-prime exposure and was less effectively hedged.
Meanwhile, Michael Hecht of Banc of America Securities, suggests that despite today’s bad news, UBS remains attractive. While the fixed income losses hurt their results, fixed income will only be about 10% of total revenues this year. According to Hecht:
UBS continues to see strong results in wealth mgmt, asset mgmt and areas of the I-bank like ECM and M&A where UBS actually has been gaining market share and equities where they remain #2 globally behind Goldman Sachs.
The conference call transcript is available for purchase here. The CreditSights report, UBS Profit Warning: The New Credit Suisse?, is available here.
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